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New California requirements shake up breach notification and data safeguards

Recent amendments to California statutes governing breach notification and data safeguards impose new obligations by: (1) enhancing breach notification requirements relating to offerings of “identity theft prevention and mitigation services”; (2) expanding the statutory requirement to implement reasonable security measures to protect personal information so that it applies not only to businesses that own or license personal information, but also to third party service providers that maintain such personal information for others; and (3) prohibiting the sale, advertisement for sale, or offer to sell an individual’s Social Security number.

The new law regarding the California breach notification requirement related to “identity theft prevention and mitigation services” has already spurred debate on two issues. First, does itrequire the offering of such breach services by entities which sustain a breach of computerized personal information, or does it only apply in cases where such entities decide, in their own discretion, to offer such services? At minimum, the new statute is clear that, if offered, such breach services, must be for at least a year and without charge to the consumer.

Second, what is the scope of the term “identity theft prevention and mitigation services?” It could include credit or identity theft monitoring, fraud detection and assistance, identity theft restoration, related insurance or some other assistance. What other breach services, if any, does it also cover? If the offering is “required”, what is the breadth of services required?

On September 30, 2014, California Governor Jerry Brown signed the amendments (Assembly Bill No. 1710) into law, to become effective January 1, 2015.

New Breach Notice Content Requirements

California law, as amended, will continue to require anyone conducting business in California that owns or licenses computerized data which includes personal information, to disclose a security breach to any California resident whose unencrypted personal information was, or is reasonably believed to have been, acquired by an unauthorized person. Under the amendments, if the person or business providing notice “was the source of the breach,” and if the breach exposed or may have exposed a person’s Social Security number, or driver’s license or other California ID, the breach notice must include “the following information,” in addition to other, currently required content:

“...an offer to provide appropriate identity theft prevention and mitigation services, if any, shall be provided to the affected person at no cost for not less than 12 months...”

A plain reading of this new language, and its placement within the breach notice content requirement, would indicate that, in these cases, any offer to provide identity theft prevention and mitigation services to the affected person must be provided at no cost for at least 12 months.

A debate is brewing over whether this notification content requirement could or should be construed to require the offer of identity theft prevention and mitigation services. Such a reading, some assert, would seem to read out the words “if any.” If the new content requirement is construed to mandate the offer of identity theft prevention and mitigation services in the event of certain data security breaches, California would be breaking ground as the first to require such services by legislation. The California Attorney General’s office may provide its own interpretation of the scope of this new requirement, and the Attorney General’s construction may soon become clear by the time the statute becomes effective at the beginning of 2015.

The industry practice seems to have settled already on at least 12 months of free services, regardless of the type, to remediate the effects of a breach and to protect against identity theft.

In addition, for many years such services have been requested or demanded, at least in some circumstances, by state attorneys general reviewing the adequacy of breach response and the possibility of enforcement action. In some circumstances, however, breached entities do not opt to offer such services because they were not required or did not seem to be appropriate to the specific breach. Whether that will change as a result of the new California law remains to be seen. The landscape is also changing with additional breach products and services being made available – and more to come in the future – which the California law seems to have anticipated by its choice of wording.

The Expansion of Safeguard Requirements to Those who “Maintain” PI

The amendments expand the existing safeguard requirements previously applicable to “a business that owns or licenses personal information about a California resident.” Similar to the HITECH amendments, the California amendment extends these requirements to include businesses that “maintain” such personal information, which would also include a number of third parties, processors and other service providers. Effective January 1, businesses that own, license or maintain personal information about a California resident are required by statute to implement reasonable security procedures and practices appropriate to the nature of the information, and to protect personal information from unauthorized access, destruction, use, modification, or disclosure.

Under the amended statute, entities that own, license, or maintain PI of California residents must also contractually require that any other third parties to whom they disclose such information (i.e., third parties that are not themselves subject to the statutory safeguard obligation) also implement and maintain the safeguards.

New Protections for Social Security Numbers

The amendment also expands the protection afforded Social Security numbers. Currently, a person or entity is prohibited (with specified exceptions), from publicly posting or displaying an individual’s SSN, or doing certain other acts that might compromise the security of an SSN, unless otherwise required by federal or state law. Effective January 1, the law also prohibits selling, advertising for sale, or offering to sell an individual’s SSN. Exceptions to this new prohibition include a release of an SSN incidental to a larger transaction and necessary to accomplish a legitimate business purpose, or as specifically authorized by law. Releases of SSNs for marketing purposes are not permitted.

ACTION ITEM: Review Your Response Plans, Safeguards, and Use of SSNs

Businesses that own, license or maintain personal information of California residents are affected by these amendments to the California breach notice and safeguard requirements, and restrictions on the sale of SSNs. Consider reviewing and updating accordingly your privacy, security and incident response programs and policies in order to maintain compliance. Until there is further clarification of the new breach notice content requirement, where the business is the cause of a breach involving SSNs or drivers’ or other California ID numbers, it must consider the risk that certain services may be required to be offered at no cost for at least a year. Vendors should also be aware that the amendment now directly subjects them to the California requirement to safeguard personal information about a California resident.